Here's our summary of key events overnight that affect New Zealand, with news all about interest rates.
The big story today is the sharp turn to risk aversion. And locally, we can see investors piling in to NZ Government bonds as one of a number of safe havens. This demand for risk-free bonds is such that it is pushing down yields very sharply. Part of the problem is that the traditional risk-free benchmark, US Treasuries, have an odour over their risk-free status. US Government debt is racing higher and can only get much worse if the US economy wobbles. That means debt ceilings will be reached sooner and defaults are an increasing possibility. Defaults and risk-free are not compatible. So investors are piling out of the US dollar and into government bonds that have low or zero histories of defaulting. There are a number of these, especially in Europe; but the Australian and New Zealand Government bonds are part of this.
The New Zealand dollar is rising. New Zealand benchmark interest rates are falling sharply.
In the US, their Q1 2019 current account deficit came in marginally worse than expected, but it is very small as a ratio to their GDP. They run surpluses for Services and Primary Income, but deficits for secondary income and in merchandise trade. Transfers out of the country are rising. In the year to March, they ran a current account deficit to about US$500 bln, or just -2.3% of GDP. In comparison, New Zealand just reported a -3.6% current account deficit to GDP for the same period. Neither is significant at this time.
In the US, rail shipments are falling, suggesting economic activity is slowing.
In China, the stimulus is rolling out faster - but there is a deliberate effort not to call it stimulus. Instead, they are "accelerating progress", "upgrading infrastructure", and "expanding safety". Stimulus with Chinese characteristics. None of these projects will dampen their demand for iron ore. But they are still battling local data manipulation, so that makes their policy targeting difficult for Beijing.
In the EU, their latest consumer sentiment survey came in more negative than analysts were expecting. While this recent survey is not outside the recent range, a small improvement was expected and it didn't happen. EU consumers have been less pessimistic than EU business leaders, but that may not last much longer.
The Norweigian central bank hiked rates last night, taking them up +25 bps to 1.25%, and said it is likely to do so again in the near future.
In the UK their central bank has left its policy rates unchanged, but they have sharply downgraded their view on economic growth.
In Australia, after their prudential regulator signaled that its sensitivity test was too tight, Westpac moved to loosen the qualifying criteria for mortgages. Westpac's changes were not available to investors or owner-occupiers with interest only loans. But hours after making the changes, the regulator reacted "with fury" and Westpac backtracked, reinstating the 7.25% serviceability floor.
And in an interesting sidelight, consumption of dairy products in Australia is booming.
Equity markets are generally higher today with the S&P500 up +0.8%, mainly on the expectation that the US Fed will cut official rates soon and return to direct stimulus. The Shanghai markets is the most bullish, up +2.4% yesterday for the same reason.
The UST 10yr yield is now just under 2.00% and down -3 bps from yesterday. Their 2-10 curve is little-changed at +22 bps while their negative 1-5 curve is slightly narrower at -17 bps. Their closely-watched 30 day-10yr yield is still sharply negative at -14 bps. The Aussie Govt 10yr is down -6 bps at 1.30%. The China Govt 10yr is up +2 bps at 3.28% (China is missing out on the bond rally), while the NZ Govt 10 yr is down -8 bps to 1.54%. We should note that the New Zealand 1-5 swap curve has now gone negative at -2 bps.
Gold has jumped a remarkable +US$40 today to US$1,389/oz. That is a gain of +3% in 24 hours.
US oil prices have jumped today, up +5% as Persian Gulf supply tensions move to front-of-mind. They are now just on US$56.50/bbl. The Brent benchmark is now at US$64.50.
The Kiwi dollar is firm against a falling greenback, now at 65.9 USc a gain of +½c since this time yesterday. On the cross rates we have risen too to be at 95.2 AUc. Against the euro we are holding at 58.4 euro cents. That puts the TWI-5 up at 70.6.
Bitcoin is up +2.3% at US$9,349. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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17 Comments
Millennial Challenge 2002
will pause at 12.5K before shooting to the stratasphere...
the whole world is latching onto the fact they are already using a digital currency
its just that BTC is not manipulable by governments or banks (just the whales but that's another story)
there is going to be a huge spike in interest and a growing awareness of where we are going once people realize where we are already....
President of Property
Look at facebook's 38 partners. Then consider that crypto / blockchain is being adopted by JP Morgan, Amazon, Microsoft etc. The time to ban it was 2017, now there will be too much power behind crypto to stop it. Only choice is for states to form their own crypto currencies and compete - like Russia is doing.
Fiat currencies are junk, the issuers seem to be the last to realize, and the dumbed down citizens will be the ones holding the bag.
They'll have no purchasing power, but plenty of notes for toilet paper and wallpapering.
Who cares if the NZD goes up a little, probably someone on MetaTrader 5 using huge amounts of leverage - the NZD is practically worthless and has terrible purchasing power inside NZ.
They best thing to do with NZD is offload it to a greater fool.
Aussie mining companies are piloting partial rare earth processing to provide an alternative to the constipated supply chain of critical tech manufacturing inputs from China.
If the country follows even partially through with the massive opportunity at hand, it'll provide their economy with the much needed growth stimulus outside major population centres and revive productivity.
https://mobile.abc.net.au/news/2019-06-21/rare-earths-could-lead-austra…
Watching US/Iran:
“When President Johnston unleashed American bombers on North Vietnam in 1964, he did so after the media helped him sell to Congress a story that communist gunboats had ‘attacked’ US warships in the ‘Gulf of Tonkin Incident’. There was no attack, no ‘incident”. (John Pilger, Distant Voices p12)
“The US is sending an aircraft carrier to the Middle East in response to a ‘number of troubling and escalatory indications and warnings’…..John Bolton has said. ‘It was unclear what Iranian actions Boulton was referring to…..there have been no recent incidents…..and the strike group was already bound for the Gulf a month before Bolton made his announcement” (Guardian Weekly, 10 May, 2019).
And there were no ‘Weapons of Mass Destruction’.
The USA is the biggest energy-needer on the planet, and is lining up Venezuela and Iran. There is no alternative – without energy nothing happens, and exponential growth is coming up against planetary limits. This not only suggests who is instigating trouble, but that we are approaching the end-game.
How is an interest rate drop at these already ridiculously low rates going to stimulate anything other than dumb investment and speculation in non productive assets like housing. Any enterprise that needs interest rates this low to make a positive investment decision is worrying about the wrong things and any proposition that needs rates this low to fly should be promptly ditched, along with the directors that are swayed by such flimsy reasoning.
What will really make you think is that there is evidence out there right now (Prof Richard Werner) that states that interest rates actually FOLLOW GDP fluctuations. Low growth leads to low interest rates. High growth leads to high interest rates. So the fallacy of low interest rates stimulating growth is ... a fallacy, which means the RBNZ et al are either misinformed... or lying. If the former... why do they keep their jobs? If the latter, why lie at all? Same reason BoJ didn't buy up banks bad debt in the 80's but did buy up bad debt after WWII. There's a plan. (You're on a need to know basis, and you don't need to know.)
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